A news item that has gotten a lot of attention recently concerned an internal performance review of Fidelity accounts to determine which type of investors received the best returns between 2003 and 2013. The customer account audit revealed that the best investors were either dead or inactive—the people who switched jobs and “forgot” about an old 401(k) leaving the current options in place, or the people who died and the assets were frozen while the estate handled the assets. The next best performers were those with energy, healthcare, and small-cap value portfolios.
My speculation on why dead people beat everyone else is that there is no temptation to employ recency bias and sell a stock simply because the price of the company went down or they assume that the recent bad economic conditions will continue perpetually into the future. Take something like BHP Billiton, one of the jewel companies with focused operations in Australia and South America. This is the premier to own for production of diamonds, oil, copper, zinc, manganese, silver, natural gas, coal, and iron ore. It has delivered 12% annual returns over the past quarter of a century, with a big chunk of those returns coming from the dividend payment.
Yet, over the past year, the price of the stock has come down from the $70s to the $40s. Many people have written about selling the stock. I found that move unwise because it is a classic example of selling low. Even with the price of commodities lower than usual, BHP Billiton is still expected to make $8.9 billion in profits this year. It’s still one of the fifty most profitable companies in the world even right now, and yet, people are getting mad that a cyclical commodities stock is having a cyclical trading pattern.